After much anticipation (as discussed previously on our blog here), the final rule regarding the salary threshold for exempt executive, administrative, professional and outside sales and computer employees under the Fair Labor Standards Act was announced today. The good news is that the rule does not go into effect until December 1, 2016, so employers have time to assess and comply. The difficult news for employers is that the threshold, while slightly lower than originally anticipated, is still more than double the previous salary requirement for classifying employees as exempt. The final rule also includes an automatic increase.
As of December 1, 2016:
- Exempt employee salary level is $47,476 (current threshold is $23,660)
- Total annual compensation level for highly compensated employees (HCEs) is $134,004 (current threshold is $100,000)
- Salary level will automatically increase every three years based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region (the South) beginning January 1, 2020 (HCEs will also automatically increase based upon the 90th percentile of full-time salaried workers nationally)
The final rule does not include any changes to the duties tests for exempt employees. However, your salaried employees must meet the duties test and be paid at least the annual salary set by the new rule in order to be exempt from overtime regulations. More information on the final rule can be found at the Department of Labor’s website at https://www.dol.gov/whd/overtime/final2016/index.htm.
Employers must quickly review those employees classified as exempt and determine if a salary adjustment will be needed or if the salaried employee needs to be reclassified come December 1, 2016. Employers need to review their current policies regarding overtime, communicate changes effectively with their employees and properly train the non-exempt employees and their managers who will be affected by this new change. Additionally, employers need to be prepared to handle the three-year automatic hike and consider changing annual reviews and compensation changes to be timed with the January 1st timeline.